Andrew (00:02) Okay, well, it is my pleasure to welcome Sandra Henderson, one of the partners at Delisle, a good friend of ours and also the CEO. So we are giving this a whirl. Let's see how it goes. Welcome, Sandra.

Sandra (00:20) Thank you, Andrew. This is a first for me. So I'm looking forward to having a discussion about why in the world we created Delial Advisory.

Andrew (00:29) How much time how much time do we have we're gonna wait I understand that Elon Musk I just did our podcast with Lex Friedman that went eight hours So let's see say goodbye to the family. Let's see if we can Let's see if we can do the whole day. I don't think I don't think we will do that But why don't we start at the beginning for those who don't know you? You know, I've had the pleasure of working with you for many many years and you've done a lot of interesting things through your career that I think

Sandra (00:37) Yeah.

Amazing.

Andrew (00:57) It's important we set a bit of context as to what experience you're bringing to Delisle.

Sandra (01:05) Great, well thank you. So to your point, we've worked together for a long time, but my history is almost 30 years in the financial services wealth management businesses. Basically with two banks across both Canada and the United States. And so very, very fortunate to really grow up essentially in the wealth management business for the majority part. I had many different roles from everything from a sales leadership role,

to client -facing types of roles, all the way to the Chief Operating Officer roles, both in the United States for a couple of years, well, four years when I worked out of Chicago, covering the U .S. for all of our wealth businesses, and then came back to Canada to be the Chief Operating Officer for private wealth, which, of course, I had the pleasure of working directly with you for a number of years. So in those COO roles, really would say, I would say, almost eight years as Chief Operating Officer roles.

Andrew (01:39) in the United States for a couple

So in those COO rules, really would say, I would say almost eight years as chief operating officer role, I had the opportunity to be able to really learn the ins and the outs of.

Sandra (02:04) I had the opportunity to be able to really learn the ins and the outs of everything to do with wealth management. I would say from everything from advisors and investment counselors, private bankers, trust officers, everything around the psyche of those individuals and what makes them tick, but probably most importantly, what was really important for clients. And I think that for me was one of the most pleasurable things I had in all of my roles was

Andrew (02:11) say from everything from advisors and investment counselors, private bankers, trust officers, everything around the psyche of those individuals and what makes them tick. But probably most importantly, what was really important for clients. And I think that was for me was one of the most pleasurable things I've

Sandra (02:32) what really drives a client? Everyone I found made their money in different ways and sometimes their backgrounds and their beginnings actually formulated what was important to them. But essentially what we do know is that clients are always have, what we want to ensure is that we have their clients' interests at heart at all times. And so that was sort of the foundation of how, when I think of how we came to Delisle and some of the things that really excited me about the opportunity.

Andrew (02:36) made their money in different ways and sometimes their background and their beginning actually formulated what was important to them. But essentially what we do know is that clients are always have, what we want to ensure is that we have their clients' interests at heart at all times. And so that was sort of the.

excited me about the opportunity is how do we ensure that everything we do we put the client's business first. So I'll pause there. That's a bit of my background and where we kind of let up.

Sandra (03:02) is how do we ensure that everything we do, put the client's best interest first? So I'll pause there. That's a bit of my background and where we kind of led up to where we're at today.

Andrew (03:11) to where we're at today. Fantastic. A couple of pieces to build on just from your travels. You've also had the unique opportunity in those two chief operating officer roles to see two very different countries, Canada and the US. And you know what you're articulating as the foundation for Delisle, which, you know, obviously resonates with with me. A lot of it is informed by the differences in

the distribution offerings between Canada and US. And maybe you could take a little bit of time and just share kind of your experience being a Canadian that worked for a number of years in the US.

Sandra (03:52) Yeah, so that was a really interesting time in my career when you think you've spent, you know, 20 years in wealth management and you head to another country. I guess I made an assumption and people always say never assume, but I assumed it would be the same. And I was very, very quickly awoken to the fact that the United States has a lot of differences, specifically around what clients feel about what I'm going to call proprietary funds. And so, and you think as a big bank, big banks,

obviously manufacture and distribute products. you know, some of those are wonderful products, whether they're ETFs, whether they're actual funds that they've created, but that is just how inherently they run an asset management business. And there are funds that they're there. So what ends up happening is, as I remember in Canada, we would often put those types of products in our funds for clients.

Andrew (04:41) What is

Sandra (04:48) In the portfolios it made sense. Well in the US that was an absolute clients understood the difference and It wasn't necessarily the investment advisors who were saying no it was clients Clients were saying I don't want proprietary funds if you've made it don't put it in my portfolio I want to ensure that I have a True fiduciary view and what the clients would never say is clients say I want to make sure I have the best in class

Andrew (04:49) in the portfolio that made sense. Well, in the US, was an absolute client understood the difference. And it wasn't necessarily the investment advisors who were saying no, it was clients. Clients were saying, I don't want proprietary funds. If you've made it, don't put it in my portfolio. I want to ensure that I...

a true fiduciary view and what the clients would never say is clients say, want to make sure I have the best in class. And I don't know if that's the case if you're putting in your own bank product into my account. So that was one thing that I took away. It was very...

Sandra (05:17) And I don't know if that's the case if you're putting in your own bank's products into my accounts. So that was one thing that I took away. It was well understood, which to me that was so different than what I found in Canada. The next piece around it was then of course if clients are not asking for it or demanding something different, you can appreciate that the advisors were exactly saying there is absolutely no way.

Andrew (05:30) That was so different than what I found in Canada. The next piece around it was, then of course the clients are not asking for it or demanding something different. You can appreciate that the advisors were exactly the same. There was absolutely no way that they were going to put things into account. So, you know, at the time it was frustrating in a way because you're working for a large bank who wants us to sell their proprietary work and really there was no appetite for it.

Sandra (05:45) we're going to put into account. you know, at the time it was was frustrating in a way because you're working for a large bank who wants us to sell their proprietary work and it really there was no appetite for it.

Andrew (06:00) What about the, what about the compa I'm sorry, you were going to say something to build on.

Sandra (06:00) So that was.

The next piece around it is the competitive nature and the competition. So that was just when you think about there is a bank, different bank, different wealth management offering on every single corner. I was based head office out of Chicago. You could look down the street and you would have 10 very competing offerings. So that was interesting for a couple of reasons. One is clients had no problems.

manage distributing their wealth among many many different people. So as we saw in Canada, there was often a consolidation of wealth to one provider. Didn't happen in the US, people would have multiple providers. So that was that was interesting because it actually created a whole other industry, which we would call is, you know, consolidation of statements and that type of work because, you know, to just keep management of all of these different offerings.

Andrew (06:52) consolidation of statements and that type of work because management of all of these different offerings, people would have a different player that would actually have consolidation of views of them. But the other thing was advisors. Advisors were they were quick to jump ship. They would move from one spot to the other very quickly.

Sandra (06:59) people would have a different player that would actually help consolidate the views of them. But the other thing was, Advisors were not, they were quick to jump ship. They would move from one spot to the other very quickly. It was often you'd see people stay three, four years at a location and then decide to what they would consider a better opportunity. So, those differences, clients became aware of it, clients moved with the advisors back and forth to different offerings.

Andrew (07:15) three, four years at a location and then decides to...

So, you know, those differences, clients.

Sandra (07:29) I found it was interesting that there was just such a difference in terms of the overall new competitors to the market. There was lots of new independent models. Often, as we've talked to a couple of those individuals over the year, people set up their own independent shops and were very, very successful. And why they did it was lots of reasons that we'll talk about today. But they did it because they wanted the independents of being able to do

Andrew (07:32) difference in terms of the overall new competitors to the market. There was lots of new independent models.

The reason they did it was lots of reasons that we'll talk about today. But they did it because they wanted the independence of being able to do...

Sandra (07:57) work for their clients and only their clients. They wanted to ensure that they were bringing in the expertise that they could really solidify for that client base that they had and maybe with a couple of other partners. But certainly as we saw with Sue O 'Leary from Trifecta, she's been a great partner for us, but she was very much, they were quick to find that there was an opportunity if they left the big bank, moved to an independent model, their clients followed them.

Andrew (08:00) They wanted to ensure that they were bringing in the expertise that they could really solidify for that client base that they had, and maybe with a couple of other partners. But certainly as we saw with Sue O 'Leary from Tri -Facta, she's been a great partner for us. But she was very much, they were quick to find that there was an opportunity if they left.

the big bank moved to an independent model, their clients followed them, but they were able now to focus 100 % of their time on these comments. Very, very interesting. Very different, yeah. Yeah, and I think your perspectives having lived it have been so valuable, and that independent model you're describing, which in the US is called the RIA channel, as you and I know,

Sandra (08:25) but they were able now to focus 100 % of their time on these clients. So good example, very different, yeah.

Andrew (08:49) As a consequence of what you're describing, the fact that there's so much more competition in the U .S., there's now 17 ,000 of these independent firms across the U .S. And what I find so interesting is it's actually a third of the market and continues to be the fastest growing part of the U .S. market, which is really divided between these RIAs, the independent channel, banks and wirehouses, you know, is basically the

the landscape.

Sandra (09:19) Yeah, and as we saw, many of these RIAs have been built from people that came from banks. You know, a lot of individuals have left the large institutions and have gone on their own. And so, you know, we'll dive deeper into the whys, but, you know, one of them was to focus on clients, as I mentioned. But the other piece is around things like profitability. You know, their way that they're looking at taking after their clients is one, they're not working for other

Andrew (09:26) You know, lot of...

Sandra (09:49) competing types of businesses in a big bank, which is a big factor. The second piece is that when there is something new or something that they want to add to the client's portfolio or something that they want to bring in, they can do it quickly. They can be flexible. They can adapt very quickly because they're making their decisions for their clients in the moment and not having to wait for the next quarter or the next fiscal calendar or not having to compete with other competing businesses for capital or investment dollars.

Andrew (10:02) They can do it quickly. They can be flexible. can adapt very quickly because they're making their decisions for their clients in the moment and not having to wait for the next quarter or the next fiscal calendar or not having to compete with other competing businesses for capital or investment dollars. So those things I think were really the fundamentals of why people wanted to make these changes. Yeah, I think you're spot on. And, you know, the insight that you're describing around ultimately delivering

Sandra (10:18) So those things I think were really the fundamentals of why people wanted to make these changes.

Andrew (10:30) the best possible experience to clients. And we'll use this term of fiduciary standards where the business exists to put the client's interests ahead of everything else, including the profit of the firm. And part of this evolution, as you and I have been digging into setting up Delisle, is the recognition that banks...

are not bad. You and I have many wonderful friendships and experiences and they operate with integrity and they want to do the right thing. The challenge in the bank is the complexity of the portfolio of businesses and the fact that there is competing tensions. Ultimately, the motivation is pursuit of profit that the bank has call it 20 different businesses and the objective

is to maximize profitability for shareholders. Again, to do that properly, to not be unethical. However, that's not necessarily exclusively focused on the best interests of the wealth management client. And in fact, as we know with the Canadian banks, overwhelmingly the business of the bank is not the wealth management business that probably...

over 90 % of the business is concentrated in other areas, whether that's lending or mortgages or the credit card business or the capital markets business or the commercial business and on and on. And I believe part of what we've seen in the US, and I'm curious with your perspective on this before we dig into some of these specific examples of best interests, is why you think

Sandra (11:59) I'm going now.

Andrew (12:19) the models are so different, that what we're talking about with these independent channels, the fact that as you say, every corner has a different competitor in the US, you see a lot more kind of demand for independence from clients who are not interested in in -house products, they want that open architecture. Why do you think we have such different tracks? Why is Canada so different than the US?

Sandra (12:46) Well, I think really we have, you know, five, six very large banks. It's been, you know, 200 years of the making of this way, right? And so there's these large banks on, you know, every corner across Canada, and people have grown up with it. They just have no one about it. And there are 300 independent channels or independent markets in Canada, but people just don't know as much about them. And it's, I think it's a matter of, I'm not sure, I wouldn't call it, it's a matter of

if, I think it's a matter of when, this whole change and transition is going to be in Canada. And perhaps it's even here now. You start to see where I know in our previous dealings in the ultra -high net worth space of clients that have $10 million and over, there was starting to be a conversation about fiduciary standards, right? Clients' best interest. And that was starting and I think as clients become a little bit more aware, more sophisticated in this specific topic, they're going to start to ask for it.

and demand it. And then what ends up happening is the market needs to adapt. So in terms of more competition, mean, you know, right now, changes haven't occurred that allow all the big US banks to really come into the marketplace and develop the same competitive nature that they have down there. But again, is that just a matter of time? And I think, you you think about markets today and

Andrew (13:50) So.

that allow all the big US banks to really come into the marketplace and develop the same competitive nature that they have down there. But again, is that just a matter of time? And I think, you you think about markets today and...

Sandra (14:11) know competition is not a bad thing, not a bad thing for the consumer, so is it just a matter of time that this is going to be coming to Canada?

Andrew (14:19) So let's build on that a little bit and now shift to some of the specifics about why the independent channel is so attractive in the US and our view that we are now in the early stages of what is gonna be a significant transition in Canada that as wealth increases, as client expectations shift, as wealth transitions to a different generation.

Sandra (14:43) Yeah.

Andrew (14:45) there is going to be an increasing demand for the independent firms. So why don't we start with perhaps just your expertise on helping understand a little bit more the product piece you were talking about. So when you think about the notion of how to build portfolios, the types of products that you end up putting into client portfolios, contrast some of the differences. We'll start there.

Sandra (15:13) Well, I think primarily in the US is the number of products, right? The number of opportunities. It's just, it's far larger. The market is larger in the US. There's just that many more people. And people have been developing a lot of different opportunities quicker. And so, you know, as an advisor in the US, your shelf, if you will, the opportunity that you can bring to the client is much broader. So clients start to add things to portfolios. They were...

you know, ahead of the game in terms of structured products and things of that nature, alternatives, good and bad, right? That's, you know, there's not always, because there's more of them, doesn't mean they're always, always great products, but there were definitely more products. I would just say, you know, things that they put towards advertisement marketing, people understand them a lot more, they're much more aware of what's coming out there. The other piece I would say is around the RA, and if you think about

Andrew (16:04) The other piece I would say is around the RA. And if you think about taking away commissions, right? Like not getting incentives to sell a certain product over another product. So if you think about, let's use an example, clients pay a straight flat fee, a percentage of their AUM or a percentage of their assets that they have under management. They're not incented to go and sell a certain product and get a referral commission or anything like that. That to me is different.

Sandra (16:07) taking away commissions, right? Like not getting incented to sell a certain product over another product. So if you think about, let's use an example, clients pay a straight flat fee, a percentage of their AUM or a percentage of their assets that they have under management. They're not incented to go and sell a certain product and get a referral commission or anything like that. That to me is different. And so,

Andrew (16:33) And so, you know, then you can honestly look your clients in the eye and say, I actually looked at the market, the research, you know, we have found the best product for you. And I'm not getting paid any differently. And we know that this is going to have the best in class.

Sandra (16:34) you know then you could honestly look your clients in the eye and say I actually looked at the market, did the research, you know, we have found the best products for you and I'm not getting paid any differently and we know that this is going to have better best -in -class type of performance, maybe transparency in terms of how they're built, those types of opportunities.

Andrew (16:53) maybe transparency in terms of how they're built, those types of opportunities.

Yeah, I think those are two really critical areas, Sandra. I mean, first on the product side, the notion that in a fiduciary context with an independent model, you construct a portfolio and then you find the building blocks that are the best and most appropriate for the client, regardless of where they are. And they could be manufactured by virtually anybody in the world with a strong focus on fees that a big focus for us is

the fact that many products are expensive and keeping fees as low as possible is one critical contributor to long -term value in the portfolios. The contrast, as you're describing the bank models, is one of the big businesses is the asset management businesses, the manufacturer of products. And so of course, there is an incentive to utilize as many of the manufactured products

Sandra (17:39) right.

Andrew (17:57) from the asset management firm again with a view to driving profitability for the overall firm. We can talk about that across all the business lines, whether it's insurance or banking or commercial banking, virtually end to end. As you know, what we're focused on is utilizing all those solutions, working with partners to do that, but not manufacturing them and having a very clear delineation.

that we work for the client and then we find the best solutions and we don't profit from those different solutions, which I think is a really, really big, is a big topic. The other one you mentioned, which I wanna go a little deeper on, we spent a lot of time talking about this one, is compensation. And the fact that compensation does drive behaviors and having complex compensation programs,

can get in the way of delivering, again, that fiduciary standard to clients. So why don't you share some of your experience in that front and then I'll pile on as it relates to how advisors get paid in the industry.

Sandra (19:05) Ugh.

Yeah, well I think that's the, it's an interesting piece, right? So when you, every year, and I'll talk specifically about banks, and this is the same by the way in the US and in Canada, but compensation is basically a very significant component of how you run a wealth management business. Of course it's how the people get paid. Annually, a very large discussion, it takes months to get towards, you know, how you want to deliver the profit that you need for the larger organization. So basically it's a bottom line conversation.

and you have to pay your people to do so. The compensation then starts to be built and it's built on normally commission -based or fee -based in the industry. That's very, very traditional and standard. But then there's also things like fees for additional products. And so people get paid additional fees for insurance if they are to then find that an insurance product

they want to bring to the client, they sell the insurance product to the client, that's an additional referral fee that they get paid in addition to the compensation that they receive for their assets under management. There's fees for referrals to other providers, for example, to perhaps a banker, a private banker or a commercial account manager. Those types of solutions, they also get referral payments. So those types of things are also built into a document and we used to laugh.

Andrew (20:11) in addition to the compensation that they receive for their assets under management. There's fees for referrals to other providers, for example, to perhaps a banker, a private banker or a commercial account manager. Those types of solutions, they also get referral payments. So those types of things are also built into a document and that, we have to laugh. The compensation documents could be upwards to 20, 30 pages long, just outlining how someone's gonna get paid in the business.

Sandra (20:32) The compensation documents could be upwards to 20, 30 pages long, just outlining how someone's going to get paid in the business. I mean, I don't, and I always say, you know, to your earlier comment, most of these investment professionals, most of the, almost every, they're doing this for their clients, right? They're trying to bring out the best of the clients, but it's just the way the system has been built. They get paid for selling more.

Andrew (20:41) So I mean, and I always say, to your earlier comment, most of these investment professionals, most of the, in everything, they're doing this for their clients, right? They're trying to bring out the best for the clients, but it's just the way the system has been built. They get paid for selling more. the things, we'll talk about it maybe after, but referral trips.

Sandra (21:01) You know, then there's, you know, things I won't, we'll talk about it maybe after, but referral trips, compensation, you know, how do people get paid? There's a referral annually, whether it's chairmen's or president's council where the more they sell, the more the trip they're going to go on. And, you know, some of those things for me is, you know, the best advisors are doing the right things for the right clients. Absolutely. But there is an incentive at times to be able to look and selling perhaps something that the client

Andrew (21:06) you know how do people get paid as a referral annually whether it's chairmans or president council or

going to go on. you know some of those things for me is you know the best advisors are doing the right thing for the right clients absolutely but there is an incentive at times to be able to look and selling perhaps something that the client just didn't need. I also think it's to your point you know building on this advisor component

Sandra (21:30) just didn't need.

Andrew (21:38) Because we're so concentrated, the advisors are doing their best for clients, are putting their clients first. It's the model that can get in the way. having a complex compensation program where you're getting paid different referral fees or commission grids based on the types of products and services that are being offered.

just creates more cloudiness around all of this. you know, one specific example that you and I have been very purposeful on with, with Delisle is things like insurance that in a planning context, which is so critical, there are many.

really important insurance strategies that can be implemented for high net worth and ultra high net worth clients as part of that planning process. So that's all great. Facilitating introductions is also great. The part that you and I don't agree with is, should an advisor be paid tens of thousands of dollars as an incentive for that referral to another part of the bank? And that's the area where a clearer

Sandra (22:34) Great.

Andrew (22:49) more transparent compensation model just serves to eliminate some of those potential conflicts that can exist. And being very clear with clients that we work for them, we collect fees from clients, we have a transparent compensation program to pay our employees, and that's it. And having it as simple as possible just eliminates some of that cloudiness.

Sandra (22:57) Great.

And I think you touched on a point that I think is so important. I mean, everyone talks about financial planning in this entire business, but having a wealth plan that then mirrors the products and the solutions that you're recommending to a client, that to me then says, you know, yeah, there is an, for example, there is an insurance need. It shows in the wealth document, it's well positioned. Then you go to the marketplace and you do your appropriate due diligence to find the best product solution.

and nobody gets paid any differently. I think that to me is really a strong sort of due diligence process behind the planning to say, yes, this is the right product and solution. You know, I think that's to me what clients are looking for.

Andrew (24:00) Yeah, absolutely. And if we build on this one, know, we do a, Jean and I do a monthly piece with the globe and we just wrote, an article, that will be coming out on, on Monday, about some of these conflicts as it relates to discretionary relationships. And maybe we could just spend a couple of minutes here. It's been a very interesting evolution that in the past, there was a very clear separation.

between the types of providers of advice to clients. And there were clients who wanted day -to -day decision -making to be made on their behalf. And so these clients would delegate that authority to their advisor. And it is a discretionary relationship. In the past, it was only offered by investment counselors.

Sandra (24:51) Mm -hmm.

Andrew (24:51) Now we have the brokerage business which has evolved tremendously and there's many advisors that offer discretionary solutions within the brokerage channel. In fact, 60 % of the discretionary relationships are now with the brokerage firms and about 40 % are with the counseling firms, both bank owned and independent, the 300 you were describing earlier. The difference though is the way this has evolved.

To be clear, the standards are the same. The regulators expect the same interpretation of things like the client focused reforms and national instrument 31103. The rule book applies equally. The challenges, the businesses are very, very different as you think about conflicts for fiduciary. And I just wanted to get your perspectives on this one. We're talking a fair bit about the potential conflicts with products.

Sandra (25:30) Mm -hmm.

Hmm.

Andrew (25:50) That certainly is an area that we're very focused on at Delisle. Compensation, another area that potentially can drive conflicts. You mentioned reward trips and the notion that these things are production based, based on revenue. And I think that definitely is another area of a legacy of how the models were built on.

Sandra (25:55) Thank you.

Yeah.

The other piece that I would suggest is that transparency, just overall client transparency and client communication. That to me is probably one of the underlying issues around all of this is that, know, disclosures are so important in our industry, so the clients understand it. But the problem is a lot of these things are baked into this, you know, 20, 30 page document, and it's the small print in the very bottom that someone discloses this.

Andrew (26:20) Yes.

Sandra (26:41) I think, you know, do advisors want to bring that little slogan or that little tagline forward in the conversation? Perhaps not, but I think it's an important element. If there is something that you need to disclose and it has to be written, then you need to have a conversation about it. And I think that's the part, the missing piece in all of this is that, you know, clients aren't aware, clients don't understand it. And when it comes forward, you hear this often, and we'll talk about the most recent example in the industry, but...

Andrew (26:59) in all of this is that clients aren't aware, clients don't understand it, and when it comes forward, you hear this often, and we'll talk about the most recent example in the industry, but clients are shocked. What do you mean, I didn't know? Well, you didn't know because it was disclosed way in the documentation, but more importantly, your advisor probably didn't mention it.

Sandra (27:10) You know, clients are shocked. What do you mean? I didn't know. Well, you didn't know because it was disclosed way in the documentation. But more importantly, your advisor probably didn't mention it.

Andrew (27:23) Yes, I think that's a really good point. And perhaps we should transition to the to the recent example and and you hit it on the head and it goes back to this fiduciary standard of how do you create an environment that very purposefully eliminates as many of the conflicts as possible. And of course, there are disclosure requirements. Those are regulatory requirements around disclosing potential conflicts.

Sandra (27:43) Right.

Andrew (27:51) But in a fiduciary context, it's really on the firm to systematically do that work before the disclosure as well. And how do you eliminate as many of the conflicts? And something I know you and I are very proud of is we really reverse engineered this in building our firm.

Sandra (28:10) Mm -hmm.

Andrew (28:10) around how can we really be able to create an environment that is as conflict -free as possible and how do you disclose them? So we'll talk a little bit about this case. It's, I think, needs to have a preface that this could be entirely okay from a regulatory point of view. The disclosures may have been appropriate. What we're trying to illustrate is less this specific case.

Sandra (28:30) No.

Andrew (28:36) and more what we can pull from it to demonstrate our point about eliminating conflict. why don't we just kind of talk a little bit about this. So in the context of brokerage firms, there are a range of possible avenues, solutions for clients. There's transactional brokerage, which is very traditional the way it used to be. You present an idea to the client, the client gives you an approval to implement the idea and off you go. But ultimately the client makes the decisions.

We now have this channel of discretionary solutions where clients delegate the day -to -day decision -making. And there are model portfolios. So you have groups of professionals that will construct models. What's the appropriate investments to put in a client that has this risk return profile? And then generally the advisors would implement that model, would use those solutions, of course, making sure they fit for their clients' needs.

And so in that discretionary context, this was a situation where a brokerage firm, Wellington Altus, the Globe released a story that indicated that the founder of the firm had a significant ownership interest in a family of ETFs that were in fact embedded within the model portfolios that clients were being offered in the discretionary context.

Now the complexity was these ETFs ran into some trouble. There was a significant amount of fees owed to a counterparty in the U S. Ultimately the regulators intervened and these ETFs have actually been delisted. And so that was pretty unique round that happened last year. The article references that in fact, to your earlier point, there was a disclosure. wasn't a disclosure document that an employee had

an ownership interest in, products that may be in the portfolios. But I do think it's worth pausing, around these conflicts that it may be from a regulatory point of view. Fine. However, what we've tried to do is really say, okay, let's separate completely the manufacturing of products from the actual advisory component of what we do. And I just want to get your reaction to, that as a.

Call it a use case in what we've been talking about with conflicts.

Sandra (31:07) Yeah, think when you have some sort of, well, I think there's two things around this whole piece that really kind of resonated with me. When somebody has a significant ownership in the product that's being manufactured, right? So the manufactured product, you have a significant ownership, it goes into someone's portfolio. And did even, I guess the bigger question, did the advisors all even know that? I think that's a, you know, they were putting this into clients' portfolios.

It was being promoted and compensated at a higher compensation rate or a higher commission rate than other products. the advisors were incented to do so. So there's a pile of conflicts built already in this whole scenario. So let me, when I peel it back and peel the onion back a little, one is having compensation over one product versus another. That I think fundamentally can be a challenge, right? So if you think about that,

Andrew (32:01) that I think fundamentally can be a challenge, right? So if you think about that and you think if you're looking at, you know, two apples and this one has a.

Sandra (32:05) and you're if you're looking at two apples and this one has a higher, you're saying, okay, I'm put that in the portfolio versus that one. So that, I think we've talked about this at Delisle a lot, is that can't happen, right? You have to have conflict of interest, just take away all of that, everything's the same, and you put products in portfolios based on the due diligence of building the models and ensuring that they're the right fit for the client. So that's number one. Number two,

Andrew (32:20) conflict of interest, just take away all of that, everything's the same, and you put products and portfolios based on the due diligence of building the model and ensuring that they're the right fit for the client. So that's number one. Number two, when clients then start to think about...

Sandra (32:35) When clients then start to think about best in class, right? And you start to say, you know, what is the due diligence behind specifically this ETF product? You know, where in the world when you look at all the ETFs in the marketplace, how did they compare this one versus any of the others? You know, and maybe they were, they did the proper due diligence. But again, now in retrospect, when something gets delisted, it certainly makes you look at it in a different fashion.

Andrew (32:39) And you start to say, what is the due diligence behind specifically this ETF product? Where in the world when you look at all the ETFs in the marketplace, how do they compare this one versus any of the others? And maybe they did the proper due diligence. But again now in retrospect when something gets delisted, it certainly makes you look at it in a different fashion. And then lastly I'll just say when an owner owns, and it was.

Sandra (33:03) And then lastly, just say when an owner owns, and it wasn't just a small ownership, it was a significant ownership of the product, and he was the founder of the organization, that to me just, it speaks to when I think of the definition of conflict of interest, that's probably number one.

Andrew (33:20) Yeah, you know, I think as we as we build on this case what what always strikes both of us is

back to why the fiduciary standards matter is clients don't really understand any of this. And as I explain these things to clients that I know you as well, people are surprised. Like they haven't really thought about who gets paid, how people get paid, why are the products in my solution.

Sandra (33:34) No.

Andrew (33:49) And so this goes back to that fiduciary standard, no different than when you're dealing with your lawyer. You expect that your lawyer is wholeheartedly putting your interests ahead of everybody else's through the transaction. Those are the fiduciary standards. What we call for in the article, just to build on this one, is irrespective of whether it's a brokerage client or an investment counseling client,

We call for more consistent standards as the evolution of client focused reform. So I think it can be argued that if you are going to gravitate to a fiduciary relationship, that's a discretionary relationship, the compensation model should probably be like, they should probably be the same in terms of construct, whether you're dealing with a counseling firm or a brokerage firm, the rules of engagement around...

Sandra (34:37) Yes.

Andrew (34:40) what products are offered, how they're disclosed, while they share the same disclosure requirement, we have to remember that the clients in a fiduciary relationship, particularly a discretionary relationship, they're hiring you because likely they don't want to read those documents. They don't have an interest in those things. And so it's a relationship really based on trust. And the final piece I would say, and you mentioned it earlier, is

The advisors overwhelmingly, you and I have dealt with so many wonderful advisors that are definitely in this business for the joy of serving clients, for being able to add value. We're talking about the playing field, really trying to create a playing field that can continue to evolve.

So this has been a pretty fascinating conversation on conflicts. think it's a conversation you and I have probably had a dozen times, so that's why it was fun to do. Is there anything else on conflicts you think we should discuss before we close out?

Sandra (35:29) Okay.

Many times.

No, I think we've touched on a lot of this. think it's, like I think when we started off the conversation, I think the knowledge and the people's interest in this conversation is only going to grow even higher in Canada. And I think, know, whether articles and, you know, podcasts like these and etc., the knowledge will go very quickly once people start to really understand this. And then that asks for change.

And to your point, is that a regulatory change? Probably, I think that's where we land. But I'm excited to see where this will go.

Andrew (36:15) Yeah, I think that's a great place to close. And you know, your earlier comment that you were surprised how different things are in Canada and US. Part of that is because the clients fundamentally are not particularly different. Clients that have accumulated wealth, who have aspirations for their lifetimes and their children's lifetime and how they're going to contribute to society and the impact that they're going to have while they're on earth.

These things are no different in Canada and US. And so I wholeheartedly agree with you is, you know, really part of how we view our role is to create environments to have these conversations. And that's how we'll keep evolving as an industry to make sure people are aware of what the other options are, choices and contrasts, you know, between different markets, which you've, you know, you're uniquely positioned to speak about. So.

Sandra (36:47) Yeah.

Andrew (37:12) Why don't we close there? I thought that was a terrific discussion and look forward to speaking soon.

Sandra (37:17) Sounds great, thank you.